The piece below was authored by our friend Hank Boerner, Chairman of the Governance & Accountability Institute, Inc. on the newly approved SEC guidance relating to climate change risk. Feel free to contact Business Wire with any questions regarding this update.
SEC DECISION RAISES THE BAR FOR CORPORATE (ISSUER) DISCLOSURE ON SUSTAINABILITY RISKS
One more shoe drops – this one a size 15 or more – in the rising and accelerating importance of ESG & Sustainability corporate key performance indicators and ESG-related factors for investment management and financial analysis, as well as for corporate senior executives, boards, and management specialists (e.g., investor relations officers, legal counsel, corporate secretaries, ESH managers, marketing officers).
On January 27, 2010 the SEC Commissioners approved an “Interpretive Release” (issuer guidance) on existing disclosure requirements related to business risk on the issue of climate change. (The vote was 3-2 along political party lines.)
The SEC did not make statements on, recognize, or endorse positions (pro or con) on climate change. It did not create new legal requirements or modify existing requirements. It did not refine the definitions of materiality to include “climate change” or “global warming.”
The SEC decision, says Chair Mary Schapiro, “…will help public companies in determining what does and does not need to be disclosed…will provide clarity and enhance the consistency of disclosure…the discussions, debates and decisions taking place in the USA and elsewhere on this topic have implications under our existing, long-standing disclosure rules…”
Four critical areas were addressed:
- The Impact of Legislation and Regulation (corporate disclosure issue: how will these if proposed or adopted affect the company?)
- The Impact of International Accords (the EU has “carbon” regulations; “Cap & Trade” legislation is being considered by the federal government; global accords could follow – disclosure issue: how would/do these affect the company?)
- Indirect Consequences of Regulation Business Trends (disclosure issue: what legal, technological, political and scientific developments [regarding climate change] may create new risks or opportunities for the company?)
- Physical Impacts of Climate Change (disclosure focus: the company should evaluate the actual or potential material impacts of environmental matters on their business. Note that the SEC has mandated certain environmental disclosure over the past 30 years.)
The request to the SEC to consider the guidance for public companies came from investors – Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk (INCR) led the campaign for broadening climate change-related disclosure by public companies (INCR is a network of 80 institutions with USD$8 trillion AUM). Commenting on the SEC decision, she said:
“Today’s vote is a clarion call about the vast risks and opportunities climate change poses for US companies – and the urgency for integrating [them] into investment decision-making…”
More than a dozen investors with $1 trillion+ AUM requested the formal guidance along with Ceres and the Environmental Defense Fund starting in 2007, amplifying the request with supplemental filings in 2008 and again in 2009. (Note: EDF is typical of the “influencers” that we profile in INSIGHTS-edge if they are not asset owners or managers or ESG financial researchers or coalitions of investors.)
One of the signatory member institutions is CalPERS, the largest state pension fund in the USA ($200+ billion AUM). CEO Anne Stausboll said this about the SEC decision: “We’re glad SEC is stepping up to the plate to protect investors…ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential…investors have a fundamental right to know which companies are well positioned for the future – and which are not…”
You can learn more (and watch the Commission meeting) at:
Recall that in December 2009 the SEC Commission approved new rules to enhance the information that shareowners receive related to risk, executive compensation and corporate governance matters [for proxy voting]. “Good governance is a system in which those who manage a company – officers and directors – are effectively accountable for their decisions and performance…but accountability is impossible without transparency,” Chairman Schapiro said. The Commission also beefed up rules related to disclosure and information about present and nominated candidates for the board.
On September 22, 2009 the US Environmental Protection Agency issued the Final Mandatory Reporting of Greenhouse Gases Rule – this requires annual reporting of GhG emissions by large sources and suppliers in the USA emitting 25,000 metric tons or more per year. ESG and Sustainability aggregators such as Trucost provide these data to analysts, investors, regulators and others. (Gases covered by the Rule include: carbon dioxide, nitrous oxide, hydro fluorocarbons, per fluorocarbons, sulfur hexafluoride, and other gases.) This action followed a US Supreme Court ruling that GhGs are air pollutants covered by the Clean Air Act, which USEPA and the states enforce.
On December 7, 2009 the USEPA Administrator signed two findings regarding GhGs – six Greenhouse Gases were determined to threaten public health; and, “well-mixed” GhGs from new motor cars and new engines contribute to GhG pollution which threatens the public health. The latter a prerequisite to finalizing the EPA’s proposed emission standards for light-duty vehicles.
Stay Tuned to the ESG and Sustainability space – there is much more to come!